Pensions and tax codes

[matt611]

Here's one for the financially minded out there, I'm not after financial advice just trying to get a better understanding of a situation or, hopefully, to be pointed in the right direction so I can read up on this.

My Mother has recently reached an age that she receives her private pension but she intends to keep working for a little while longer; currently full time but may become part time. She received a letter from the tax man stating her tax code would now change. It also said that her personal tax free allowance would be reduced.

What I don't get is why her tax free allowance reduces, I thought it only goes down when you earn over £100,000 (which she doesn't) or if you were born before 1948 (which she wasn't).

Anyone point me in the direction of some further reading? Thanks

 

[chrisd]

I think it's reduced to take into account her pension which is also taxable

 

[gjbike]

What my wife has done to get round paying tax on her pension providing you don't need the money while working is to re-invest her pension into another pension plan and you get tax relief and it is legal our financial advisor sorted it out for us.

 

[Foxholer]

I think it's reduced to take into account her pension which is also taxable

That's correct!

What my wife has done to get round paying tax on her pension providing you don't need the money while working is to re-invest her pension into another pension plan and you get tax relief and it is legal our financial advisor sorted it out for us.

Don't let guest100718 know though!

 

[Mattyboy]

Sounds like she gets the standard £10,000 allowance. Does she receive her state pension? If so, how much? This is taxable but paid gross.

Also, the HMRC are prone to the odd 'mistake' so I would check.

 

[Hobbit]

Also, the HMRC are prone to the odd 'mistake' so I would check.

Mmm, I got a letter from HMRC on Friday with two different tax codes in it for this coming year. I'd spoken to them the week before when they'd advised a code change from xxxL to 670k(OUCH!).

 

[drdel]

The state pension is paid gross; i.e. untaxed. So to make life easy the HMRC add together her private pension and the state pension to get the total income.

The £10k personal allowance is deducted from that total income to give the tax due. To ensure that is taken monthly from the Private pension they alter the tax code (lower it) to take bake some of the tax that's due on the State pension.

 

[Mattyboy]

Mmm, I got a letter from HMRC on Friday with two different tax codes in it for this coming year. I'd spoken to them the week before when they'd advised a code change from xxxL to 670k(OUCH!).

Its strange how their errors always appear to be in their favour! They wrote to me reducing my code because I earn over £100k pa - If only I did, I could afford to be a member of a golf club!

 

[matt611]

Sounds like she gets the standard £10,000 allowance. Does she receive her state pension? If so, how much? This is taxable but paid gross.

Also, the HMRC are prone to the odd 'mistake' so I would check.

No state pension, not for a few more years

 

[Mattyboy]

No state pension, not for a few more years

I would query it then - she may owe from a previous year however.

Good luck